By Andy Bruce and William Schomberg
LONDON (Reuters) – The Bank of England escalated its warnings about the fallout from a British vote to leave the European Union next week, saying it could harm the global economy and sterling looked increasingly likely to fall further after an “Out” decision.
The BoE’s monetary policymakers also discussed the Bank’s contingency plans to protect the banking system in the event of an “Out” vote, including closer supervision of banks to make sure they have access to the liquidity they need.
They said the referendum was the largest immediate risk facing British financial markets, repeating previous language about the vote but this time they said markets and economies around the world could be at risk too.
“Through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy,” minutes of the June 15 meeting of the Bank’s Monetary Policy Committee said.
Billions of dollars have been wiped off global stock markets in the run-up to the June 23 referendum and yields on government bonds in several countries have hit record lows.
Bank of England Governor Mark Carney has faced increasingly hostile criticism from supporters of a British exit from the EU who accuse him and the Bank of making unnecessary warnings about the risk of a hit to the economy from a Brexit vote.
Carney has said the Bank has a duty to spell out what is likely to happen to the economy. Other institutions have also warned of a hit from a Brexit vote and the International Monetary Fund is expected to detail its forecasts on Friday.
The BoE’s nine rate-setters voted unanimously to keep interest rates at their record low of 0.5 percent at their meeting, the BoE said.
“GROWING EVIDENCE” OF INVESTMENT DELAYS
Finance minister George Osborne, who is struggling to keep voters focused on his message that a vote to leave the EU would hurt them financially, immediately tweeted the Bank’s latest warnings, as another opinion poll showed the “Leave” campaign in the lead with just a week to go before the vote.
U.S. Federal Reserve Chair Janet Yellen on Wednesday acknowledged Britain’s possible exit from the EU as a factor for keeping U.S. interest rates on hold this month, and the Bank of Japan said the risk of Brexit is its biggest near-term concern.
BoE policymakers said it was “increasingly likely” that sterling would fall further after a vote to leave the EU, perhaps sharply.
Shifts in the pound’s exchange rate around the publication of opinion polls had reinforced their view that a big part of sterling’s weakness recently was down to uncertainty around the referendum.
It remained unclear how much of the slowdown in the economy was down to the referendum, the Bank said. But the minutes pointed to “growing evidence” that businesses had delayed major investment decisions in the run-up to the vote.
The BoE said once again that its stance on interest rates following a “leave” vote would be complicated by the competing pressures from a hit to economic growth and from the expected fall in the pound which could push up inflation.
“The Bank of England will take whatever action is needed,” it said.
The minutes showed the MPC discussed financial stability measures available to the Financial Policy Committee after the referendum, as well as more intensive supervision of bank liquidity from the Prudential Regulation Authority.
(Editing by Robin Pomeroy)